What is a Stock Exchange? - Explained

What is a Stock Exchange? - Explained

Image by Divya Thakur in Flickr under Creative Commons Category

There are two favorite types of limited liability companies in the world. One type is Private Limited Liability Company and the other type is Public Limited Liability Company. Private Limited Liability Companies cannot sell the shares or stake of the company in public and can be sell a share or a stake of the company only by privately. Majorly within family and friends. The other type of the limited liability company type is Public Limited Liability Company. Which can sell shares or stakes of the company in public.

Going Public

Not all limited liability companies are entitled to be a public limited liability company. For a limited liability company to privileged to become public limited liability company there are some criteria which a limited liability company needs to be achieved. Which could include large balance sheets, large revenue, large valuation and etc... Privately held, limited liability companies could go public by only achieving the criteria which makes the company to go public.

For a Company to go public, there needs to be a common place where individuals and other business can buy shares by investing money per a share. This common place is known as a Stock Exchange, A separate business entity manage the purchases and sales of a particular company which listed on the stock exchange. 

The process of getting listed on a stock exchange is also know as going public.

Getting Listed on a Stock Exchange

To get listed the limited liability company needs to initiate a Initial Public Offering also known as IPO. IPO allows the investors to determine the price of the company at the initial stage. With the demand and supply, general public choose the share price of a newly company which gone public as a public limited liability company. 

An IPO could take place from a one trading to couple of trading days in a stock exchange.

Introducing Buyers to Sellers

If somebody wants to sell a car what's very common method is to advertise on a online advertising space with relevant information. And if there's a buyer who needs buy the car which has been advertised on the advertising space will contact the seller and make the deal happen at an agreed price of both.

Stock Exchange also doing more or less the same. Stock exchanges do introduce buyers to sellers and sellers to buyers. Showcasing the demand of a share of a particular company and supply of shares of a particular company.

In a nutshell

Stock exchange is a common place where buyers can meet sellers and sellers can meet buyers. In other words, a common place where supply meets demand and demand meets supply